Solana Resources Reports YTD Results

Solana Resources Limited (TSX-V:SOR; AIM:SORL), the Colombia focused independent oil and gas exploration and production company, announces its results for the nine month period ending September 30, 2006.

The discussion and analysis that follows is intended to provide a summary of Solana Resources Limited's activities and results over the nine month periods ended September 30, 2006 and 2005 as well as its financial position and future prospects. It should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 2005 and 2004. All numbers in this discussion and analysis are expressed in Canadian dollars unless otherwise indicated.

Solana is an international resource company engaged in the acquisition, exploration, development and production of oil and natural gas. The Company's properties are located in Colombia, South America and are primarily held through its wholly owned subsidiary, Solana Petroleum Exploration (Colombia) Limited ('Solana Colombia'). The Company is headquartered in Calgary, Alberta, Canada.

SIGNIFICANT ISSUES

Subsequent to the end of this nine month reporting period, on October 4, 2006, Solana underwent a significant corporate restructuring facilitated through its acquisition of Breakaway Energy Inc. Through this transaction, Mr. Scott Price and Mr. Glenn Van Doorne, principals of Breakaway Energy, became the President and CEO and the Chief Operating Officer of Solana respectively. Mr. Stephen Newton continues with Solana as the President and director of Solana Colombia while Mr. Menno Wiebe, the Vice President of Exploration of Solana Colombia, resigned to pursue other interests.

Continued high oil prices have sustained increased oil and gas activity on a world wide basis. This activity level has resulted in a global shortage of skilled personnel, drilling rigs, casing, line pipe etc. and is reflected in Colombia by ever increasing mobilization costs and rig rates and difficulties accessing equipment and trained people. As a result, the estimated value of Solana's work commitments for the next year exceeds $46 million. As such, while all contractual deadlines have been met to date, costs have exceeded original budgets. Taking into account its cash balance, Solana is prioritizing its current commitments. This high cost, scarce equipment and personnel environment is expected to continue for the foreseeable future.

Solana plans to drill one well on each of its Guauchiria Norte, Gaviotas, Guayuyaci and Chaza blocks during Q1 2007.

President Alvaro Uribe was re-elected in May 2006 with an increased popular mandate and will remain in power until 2010. With a majority in Congress and provided the alliance of pro-Uribe parties remains cohesive, 'governability' is likely to improve. The Economist Intelligence Unit expects President Uribe to maintain a prudent fiscal policy and are forecasting solid (4.1% per year) if somewhat slowing GDP growth for 2007-2008.

Despite improvements in security from the weakening of the guerrillas and the demobilization of around 30,000 paramilitaries, public security will remain poor particularly in some rural areas in which Solana operates (mainly the Catatumbo). In parts of this area Solana will require additional support to ensure operations can continue unimpeded. A negotiated end to the conflict with the FARC remains unlikely.

SOLANA'S PROJECTS

COLOMBIA

LLANOS BASIN

The Llanos basin is located northeast of Bogota, the capital of Colombia, on the east side of the Andes mountains. It covers an area of approximately 200,000 km2 (77,000 square miles). The Basin is bounded to the West by the foothills of the Cordillera Oriental, the easternmost of the three distinct ranges of the Andes, traversing Colombia in a north-south direction; to the North by the Apure Basin and the Cordillera de Merida in Venezuela; to the East by the Guyana Pre-Cambrian cratonic shield and to the South by the Amazon Basin from which it is separated by the Serrania de la Macarena Mountains.

Solana has working interests in five blocks in the Llanos Basin, covering an area of 1,680 km2 (649 square miles). These blocks are from North to South: Guachiria Norte, Guachiria, Guachiria Sur, Gaviotas and Garibay.

GUACHIRIA NORTE BLOCK

Solana is the Operator of the 412 km2 (159 square miles) Guachiria Norte Block with a working interest of 100%. Petroleum Exploration International S.A. (Pexin) has the right to a 30% working interest upon the completion of certain work obligations. Pexin has agreed to fund 60% of the first 5 wells in Solana's Llanos blocks to earn 30%. To date Pexin has participated in 3 wells. The block is located approximately 250 km (155 miles) northeast of Bogota and is subject to an Agencia Nacional de Hidrocarburos (ANH), the Government regulatory body, contract.

During Phase 1 (December 21, 2004 to December 21, 2005) the Bonaire-1 well was drilled. The well tested 7 m3/day (44 bopd) of waxy crude and is currently shut in pending a technical review. The composition of this paraffinic oil will be analyzed in order to optimize the method of production.

During Phase 2 (December 21, 2005 to December 21, 2006) 56 line-km (35 miles) of seismic were acquired and interpreted. As a result of the re-interpretation of a 157 km2 (61 square miles) 3-D seismic survey (acquired in 2001 and reprocessed in 2005) a very prospective channel system was identified in the Carbonera depositional package. This channel could have recoverable oil reserves of approximately 1,250,000 m3 (8 million bbls). In this part of the Llanos Basin, drilling activity is restricted to a four month weather window from December to March and as such Solana has submitted an application to the ANH to extend the Phase 2 period to March 2007. Assuming ANH approval, Calcedonia-1 will be drilled within this weather window as soon as a suitable rig can be obtained.

During Phase 3 (December 21, 2006 to December 21, 2007) Solana is required to drill one well.

GUACHIRIA BLOCK

Solana is the Operator of the 75 km2 (29 square miles) Guachiria Block with a working interest of 100%. However, Pexin has the right to earn a 30% working interest upon the completion of certain work obligations. The block adjoins the Guachiria Norte Block immediately to the South. This block was acquired from Empresa Colombiana de Petroleos SA (Ecopetrol, the State owned oil Company), and is subject to a standard ANH contract plus an additional 13% royalty payable to Ecopetrol.

During Phase 1 (October 9, 2003 to October 9, 2004) the Malabares-1 well was drilled and following an inconclusive test the well was suspended.

During Phase 2 (October 9, 2004 to October 9, 2005, extended to June 1, 2006) the Bucaro-1 well was re-entered. The well tested 123 m3/day (774 bopd) waxy crude but is currently shut in due to a high water cut. Further analysis to potentially optimize production is required. In May 2006 the Yalea-1 well was drilled. The well tested oil and is currently producing approximately 30 m3/day (189 bopd, 123 net to Solana).

For Phase 3 (June 1, 2006 to June 1, 2007), Ecopetrol has agreed that Solana may substitute its well commitment for a 100 km2 (39 square mile) 3-D seismic survey, covering the block, and overlapping the southern part of the adjacent Guachiria Norte 3-D seismic survey. This survey is planned to start in December 2006 and will be processed and interpreted during 2007. In this part of the Llanos Basin, drilling and seismic activity is restricted to a four month weather window from December to March.

GUACHIRIA SUR BLOCK

Solana is the Operator of the 366 km2 (141 square miles) Guachiria Sur Block with a working interest of 100%. However, Pexin has the right to earn a 30% working interest upon the completion of certain work obligations. The block is to the west and the south of the Guachiria Block and to the south of the Guachiria Norte Block. This block is subject to an ANH contract.

During Phase 1 (October 25, 2005 to October 25, 2006) 155 line-km (96 miles) of seismic data were acquired and 300 line-km (186 miles) of seismic data were reprocessed.

The commitment to drill a well during Phase 2 (October 25, 2006 to October 25, 2007) has been renegotiated with the ANH to be replaced by a 155 km2 (60 square mile) 3-D seismic survey and a commitment to drill one well during Phase 3 (October 25, 2007 to October 25, 2008). The survey will start in December 2006 and cover the northern part of the block, adjacent to the Guachiria Block and the northern area of the block, immediately south of the Guachiria Block.

GAVIOTAS BLOCK

Solana is the Operator of the 377 km2 (146 square miles) Gaviotas Block with an 80% working interest. However, Pexin has the right to 37.5% of Solana's working interest, a net 30% working interest, upon the completion of certain work obligations. A Colombian investment group owns the remaining 20% working interest. The block is located approximately 170 km (105 miles) east of Bogota. This block was acquired from Empresa Colombiana de Petroleos SA (Ecopetrol, the State owned oil Company), and is subject to a standard ANH contract plus an additional 13% royalty payable to Ecopetrol.

During Phase 1 (December 18, 2003 to February 18, 2005) 50 line-km (31 miles) of seismic data were acquired.

During Phase 2 (February 18, 2005 to February 18, 2006, extended to May 18, 2006) the Gaviotas-1 well was drilled and 85 line-km (53 miles) of seismic were acquired and 650 line-km (404 miles) reprocessed. Although wireline logs of the Gaviotas-1 well indicated hydrocarbon bearing zones, tests were inconclusive. Further evaluation of the logs and subsequent testing well is required.

There is a one well commitment for Phase 3 (May 18, 2006 to May 18, 2007) and Solana is planning to drill the Belgica prospect (Belgica-1) as soon as a suitable rig is available and weather permits.

GARIBAY BLOCK

Solana is the Operator of the 450 km2 (174 square miles) Garibay Block with a working interest of 100%. The block is located approximately 170 km (105 miles) east of Bogota and 15 km (9 miles) south of the Gaviotas Block. This block is subject to an ANH contract.

During Phase 1 (October 25, 2005 to October 25, 2006) 136 line-km (85 miles) of seismic data were acquired and 300 line-km (186 miles) reprocessed.

During Phase 2 (October 25, 2006 to October 25, 2007) Solana is required to drill one well. The ANH has approved the replacement of this programme with the acquisition of 100 km2 (39 square miles) of 3-D seismic, subject to relinquishment of 30% of the block area.

PUTUMAYO BASIN

The Putumayo basin is located in southwest Colombia and extends into Ecuador, where it is called the Oriente (Ecuador)-Maranon (Peru) Basin. It covers an area of approximately 320,000 km2 (124,000 square miles). It is bounded to the west by the Central and Western Cordillera, to the north by the Macarena uplift, which separates it from the Llanos Basin, and to the east by the Guyana Shield. The south boundary is formed by the Ucayali and Acre basins in Brazil and Peru.

Solana holds interests in the Guayuyaco Block and the Chaza Block totaling 536 km2 (207 square miles).

GUAYUYACO BLOCK

Solana holds a 35% non-operated net working interest in the 212 km2 (82 square mile) Guayuyaco Block, located approximately 290 km (180 miles) southwest of Bogota. Gran Tierra Energy Inc. is the Operator with 35% working interest. Ecopetrol has a 30% working interest in the Guayuyaco field which is currently producing 160 m3/day (1,000 bopd, 350 bopd net to Solana). All commitments are fulfilled and the block is being further developed under an Association Contract.

The Operator is currently mobilizing a rig from Venezuela to drill the Juanambu-1 exploration well. Solana will finance two thirds of this well to finalize the earning of a 50% interest in this block (35% post Ecopetrol back-in on any commercial discovery). The spud date is expected to be early January 2007. This field could have gross recoverable reserves of 1.5 million m3 (10 million bbls).

CHAZA BLOCK

Solana has a 50% working interest of the 325 km2 (125 square mile) Chaza Block, immediately west of the Guayuyaco Block. Gran Tierra, the operator, holds the other 50% in the block. All first Phase commitments have been fulfilled and a well has to be drilled in the second Phase. The block is held under an ANH contract.

During Phase 1 (June 27, 2005 to June 26, 2006) Solana participated in the acquisition of 27 line-km of 2-D and 13.5 km2 of 3-D of seismic data and the reprocessing of 250 line-km of 2-D data.

During Phase 2 (June 27, 2006 to June 26, 2007) the partners are required to drill one well. The Naboyaco-1 well (previously named Cafelina-1) will be drilled immediately after the Juanambu-1 well with the same rig. Naboyaco is a 2.4 million m3 (15 million bbls) target.

PUMA WELL

Solana participated for 96% of the cost of Ramshorn International Limited's 30% working interest in the Puma well to earn 75% of Ramshorn's 25% revenue interest (net 18.75% to Solana). The Puma well was drilled in September 2005 under a Shared Risk Contract, but was not tested. Ecopetrol, the Operator, has opted out of the testing and Solana and Ramshorn are currently testing the well on a sole risk basis. Solana is paying 75% of the cost of the well testing to earn 75% of the production until 200% of the incurred costs are recovered. Thereafter, Solana's interest will drop to 48%.

CATATUMBO BASIN

The Catatumbo Basin is a subbasin, forming the southwest flank of Venezuela's prolific Maracaibo Basin. It is bounded to the west by the Santander Massif and the Sierra de Perija and in the south and southeast by the Merida Andes. The eastern boundary is defined by the Venezuelan border with Colombia.

Solana has two blocks in the Catatumbo subbasin, namely Catguas and Cerro Gordo, covering a total area of 1878 km2 (726 square miles).

CATGUAS BLOCK

Solana is the operator of the 1,620 km2 (625 square miles) Catguas Block with 85% working interest in the southernmost two-thirds of the Block. In the northern third, Solana has a 50% working interest. Solana's partner in this block is Well Logging Ltda, a Colombian company.

The block is held under an ANH contract. The commitments for the first Phase (November 17, 2005 to May 17, 2007) were partially fulfilled by the acquisition of 200 line-km (124 miles) of seismic data and 10 line-km (six miles) of high resolution seismic. Remaining commitments are the drilling of two wells.

Seismic interpretation has identified several drillable prospects. Two smaller structures, each with gross recoverable oil reserves expected to be around 160,000 m3 (1 million bbls) will be drilled as soon as a suitable rig has been identified.

CERRO GORDO BLOCK

Solana is the Operator with a 50% working interest in the 260 km2 (100 square mile) Cerro Gordo Block. Its partner is Well Logging Ltda. The block has a commitment to re-enter or drill one well before April 28, 2007.

The Block contains a gas discovery but due to lack of infrastructure, market remoteness and high carbon dioxide levels within the gas, Solana is planning to relinquish its interest back to Well Logging Ltda.

ALAMO WELL

Alamo-1 was drilled during September 2006 with Solana contributing 96% of Ramshorn International Limited's 40% cost share of the well (net 38.4%) to earn 75% of Ramshorn International Limited's 35% working interest (net 26.25%). Although several hydrocarbon bearing zones were identified on logs, the well failed to test oil in commercial quantities and was abandoned.

LOWER MAGDALENA BASIN

The Lower Magdalena basin is located in northwest Colombia. It covers an area of approximately 87,000 km2 (33,500 square miles). The Basin is bounded to the South by the Bucaramanga thrust fault, which separates it from the Middle Magdalena basin and the northernmost part of the Andean region; to the east by the Santa Marta fault; to the west by the Sautata-Taumarado arch and to the north it continues offshore to the marine platform of the Caribbean.

MAGANGUE BLOCK

The Magangue Block is held pursuant to the Magangue Association Contract. Solana is the operator of the block with a 37.8% working interest and has partners, Ecopetrol with 58%, and Technopetrol, a Colombian company, with 4.2%.

Solana operates the Guepaje gas field on the 169 km2 (65 square mile) Magangue Block, which is currently producing 104,000 m3/day (3.7 mmcfd, 1.4 mmcfd net to Solana) and sold into the local market at USD2.42/mmbtu. The well is slowly depleting and Solana is currently re-evaluating the available seismic and geological information, to identify other possible targets.

MIDDLE MAGDALENA BASIN

The Middle Magdalena Basin is an intermontane basin located in central Colombia, between the crystalline rocks of the Central Cordillera to the west and to the east by the Garzon Massif of the Eastern Cordillera. Solana has interests in the Guariquies field and the Zeus prospect in this area.

GUARIQUIES FIELD

Solana has a 37.5% working interest to earn a 33.75% revenue share interest in the Guariquies field. The Guariquies-1 well underwent a long term production test utilizing a jet pump and is currently shut in for a pressure buildup. The Guariquies-2 well is suspended after testing subcommercial gas rates. A decision to build a flow line to connect to the nearby Ecopetrol facilities is also pending the completion of additional studies. The AFE for the Guariquies-3 well has been approved and the well is expected to spud during Q4 2006.

ZEUS PROSPECT

Solana is paying for 96% of Ramshorn International Limited's 50% cost share of the first Zeus well (net 48%) to earn 75% of Ramshorn International Limited's 45% revenue share (net 33.75%).

The spud date for the Zeus well is expected to be during Q1 2007.

Glenn Van Doorne, Chief Operating Officer of Solana, a Petroleum Geologist, with 30 years of experience and a member of the AAPG and the SPE, is the qualified person that has reviewed the technical reserve, resource, and drilling update information contained in these results.

OPERATING RESULTS

Selected Quarterly Information

The following table summarizes selected financial data for Solana for each of the two most recently completed financial nine-month periods ended September 30, 2006 and 2005. Unless otherwise noted, all currency amounts are stated in Canadian dollars.

-------------------------------------------------------------------------
                                 September 30, 2006      September 30, 2005
    -------------------------------------------------------------------------
                                 Three        Nine       Three        Nine
                                 Months      Months      Months      Months
                                 Ended       Ended       Ended       Ended
    -------------------------------------------------------------------------
                                   $           $           $           $
    -------------------------------------------------------------------------
    Revenue
    Production Revenue, net
     of royalties              3,709,469   8,917,603   2,242,770   4,711,746
    Operating costs              635,712   1,762,376   1,394,519   2,235,827
    -------------------------------------------------------------------------
                               3,073,757   7,155,227     848,251   2,475,919
    -------------------------------------------------------------------------

    Expenses
    General and administrative   474,960   2,838,030     711,020   2,264,979
    Depletion, depreciation
     and accretion               994,435   3,352,236     390,288   1,020,883
    Foreign exchange (income)
     loss                     (3,839,157) (2,576,049)    236,457      97,465
    Stock-based compensation     235,299     828,013     434,000   1,404,622
    -------------------------------------------------------------------------
                              (2,134,463)  4,442,230   1,771,765   4,787,949
    -------------------------------------------------------------------------

    Other income (expenses)
    Interest                     385,617   1,216,528     170,171     581,670
    Income taxes                    (292)    (51,919)          -     (50,000)
    -------------------------------------------------------------------------
                                 385,325   1,164,609     170,171     531,670
    -------------------------------------------------------------------------

    Net income (loss)          5,593,545   3,877,606    (753,343) (1,780,360)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income (loss) per
     share                          0.08        0.05       (0.01)      (0.03)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                 September 30,   December 31,
                                                     2006            2005
    -------------------------------------------------------------------------
                                                      $               $

    Share capital                                 150,296,534    110,910,147

    Working capital                                52,673,753     28,457,255

    Petroleum and natural gas properties           92,778,267     73,618,637

    Total assets                                  155,610,936    111,807,270

    Total long-term liabilities                     6,769,811      6,725,565

    Shareholders' equity                          142,238,792     98,146,787

    Cash dividends per share                              NIL            NIL
    -------------------------------------------------------------------------

Results of operations for the three and nine month periods ending September 30, 2006 and 2005

The net income from production was obtained mainly from Guayuyaco l & 2 (86%) in the third quarter and the Company's net results are as follows:


    -------------------------------------------------------------------------
                                                  Nine months    Nine months
                                                     ended          ended
                                                 September 30,  September 30,
    Figures expressed in                             2006           2005
     US dollars except Bopd                        (Average)      (Average)

    Bopd                                                  410            851
    Net revenue, net of royalties per Barrel           $57.47         $30.25
    Net operating costs per Barrel                     $12.16         $14.35
    -------------------------------------------------------------------------

Average production for the nine months ended September 2005 was derived from long term test production at Bucaro-1 and the two Guayuyaco wells (50% during the pre-commerciality period). The average production for the nine month period ended September 2006 is substantially lower than for the same 2005 period as Bucaro-1 was suspended due to high water production, and in addition to natural decline, Solana was only receiving 35% of Guayuyaco production post Ecopetrol back-in (instead of the original 50% pre Ecopetrol back-in).

General and administrative expenses for the three- and nine-month periods ended September 30, 2006 amounted to $474,960 and $2,838,030 respectively, in comparison to the three and nine-month periods ended September 30, 2005, which amounted to $711,020 and $2,264,979 respectively.

Most of the components of general and administrative expenses increased due to the current period's activities. Public company costs increased mainly due to the costs associated with the issuance of shares and fees paid to meet listing requirements. Salary and benefits increased as a consequence of staff changes.

Depletion, depreciation and accretion amounted to $994,435 and $3,352,236 for the three and nine month periods ended September 30, 2006, compared to the same periods a year ago, which were $390,288 and $1,020,883 respectively. The depletion expense is calculated based on the decline in proved reserves, and amounts to $949,985 and $3,212,532 for the three and nine month periods ended September 30, 2006, compared to the same periods a year ago, which were $264,437 and $895,032, respectively. Increase of depletion charges are directly affected by additions made to the depletable base.

Depreciation amounts to $29,701 and $95,457 for the three and nine month periods ended September 30, 2006, compared to the same periods a year ago, which were $49,934 and $108,450 respectively, and relates to the Company's other assets, primarily office equipment and leasehold improvements.

Accretion expense amounting to $14,749 and $44,247 for the three- and nine-month periods ended September 30, 2006 compared to $17,401 for the nine- month period ended September 30, 2005 represents the costs to plug and abandon its petroleum and natural gas wells at the end of their useful lives.

The foreign exchange profits amounting to $3,839,157 and $2,576,049 for the three- and nine-month periods ended September 30, 2006, compared to the same periods a year ago, which were losses of $236,457 and $97,465 respectively, is due to the translation adjustment of the Inter-company balances and the exchange income realized from term deposits in US dollars.

Stock-based compensation amounting to $235,299 and $828,013 for the three- and nine-month periods ended September 30, 2006, compared to the same periods a year ago, which were $434,000 and $1,404,622 respectively. The decrease in stock-based compensation reflects a reduction in amortization for options granted in 2004 and options expired.

Other income mainly relates to interest income amounting to $385,617 and $ 1,216,528 for the three and nine month periods ended September 30, 2006, compared to the same periods a year ago, which were $170,171 and $581,670 respectively. The increase is due to interest from term deposits held in CDN dollars.

The income tax expenses amounting to $292 and $51,919 for the three- and nine-month periods ended September 30, 2006, correspond to adjustments to the income tax payable on a presumptive basis.

The resulting net profit (loss) amounting to $5,593,545 and $3,877,606 for the three and nine month periods ended September 30, 2006, compared to the same periods a year ago, which were $(753,343) and $(1,780,360) respectively is related to an increase in revenue from the Company's Colombian operations and a non cash inter-company foreign exchange adjustment.

The Company's share capital increased $39,386,386 at September 30, 2006 from $110,910,147 at December 31, 2005 due to the issue of 21,000,000 common shares at $2.00 per share, less cost of the issuance of $2,627,614 and the exercise of 140,000 options at $0.10 each.

Selected Quarterly Financial Information

The following table sets out selected unaudited quarterly financial information of Solana and is derived by unaudited quarterly financial statements prepared by management. Solana's interim financial statements are prepared in accordance with Canadian generally accepted accounting principles and are expressed in Canadian dollars.


-------------------------------------------------------------------------
                                Sep 30,     Jun 30,     Mar 31,    Dec 31,
                                 2006        2006        2006        2005
                                   $           $           $           $

    Additions to Petroleum
     and Natural Gas
     properties                4,936,169   9,960,499   7,548,553  12,055,993

    Total revenues             4,095,086   3,139,171   2,899,874   3,690,011

    General and administrative
     expenses                    474,960   1,343,467   1,084,988   1,126,933

    Depletion, depreciation
     and accretion               994,435   1,073,847   1,218,568   4,665,478

    Foreign exchange income
     (loss)                    3,839,157    (976,849)   (286,259)    331,567

    Stock-based compensation     235,299     256,549     336,165     766,478

    Income (loss) after taxes  5,593,837  (1,387,630)   (328,309) (2,289,806)

    Income (loss) per share         0.08       (0.02)      (0.01)      (0.04)

    -------------------------------------------------------------------------
                                Sep 30,     Jun 30,     Mar 31,     Dec 31,
                                 2005        2005        2005        2004
                                   $           $           $           $

    Additions to Petroleum
     and Natural gas
     properties                7,045,475   6,350,471   8,234,026  13,125,680

    Total revenues             2,412,941   2,381,774     498,703     557,233

    General and administrative
     expenses                    711,020     893,827     710,131     707,660

    Depletion, depreciation
     and accretion               390,288     496,713     133,883     359,952

    Impairment                         -           -           -   1,102,826

    Foreign exchange income
     (loss)                     (236,457)   (408,500)    547,492    (522,317)

    Stock-based compensation     434,000     366,122     604,530   1,102,826

    Income (loss) after taxes   (753,343)   (546,216)   (530,830) (3,963,435)

    Income (loss) per share        (0.01)      (0.02)      (0.01)      (0.14)

    -------------------------------------------------------------------------

LIQUIDITY

Solana's working capital increased from $28,457,255 at December 31, 2005, to $52,673,753 at September 30, 2006, largely due to the issue of additional common shares.

The Company's cash balances at September 30, 2006 are comprised of $38,978,887 in cash and term deposits and $5,338,811 held in trust. These funds are committed to the Company's planned capital expenditure program in Colombia. The Company will require additional financing to fund its ongoing exploration, development and appraisal programs. Management plans to meet this need through strategic farm-outs, asset dispositions, debt financing or by other means.

The Company's long-term liabilities are $6,769,811 (2005 - $6,725,565) and the most significant component is the $6,100,000 future tax liability. Solana's shareholders' equity increased from $98,146,787 at December 31, 2005, to $142,238,792 at September 30, 2006.

SUMMARY OF CASH INFLOWS AND OUTFLOWS

The Company generated cash inflows from operations amounting to $6,823,279 and $8,057,855 for the three-and nine-month periods ended September 30, 2006, compared to the same periods in 2005 which had cash outflows amounting to $617,538 and $373,754. This difference is substantially due to a combination of higher oil prices, significantly higher per barrel depletion costs and foreign exchange gains.

Solana's net cash inflow from financing activities amounted to $39,386,386 for the nine-month period ended September 30, 2006, compared to $1,415,000 for the period ended September 30, 2005 due to the private placement of common shares.

The Company incurred cash outflows from its investing activities of $4,118,163 and $23,227,743 for the three- and nine-month periods ended September 30, 2006 as compared to $12,102,643 and $23,699,292 for the three- and nine-month periods ended September 30, 2005. The most significant cash outflow component was $4,936,169 and $22,511,866 of expenditures for petroleum and natural gas properties for the three- and nine-month period ended September 30, 2006 compared with $7,045,475 and $22,083,559 expended for the three- and nine-month period ended September 30, 2005.

RELATED PARTY TRANSACTIONS

The Company paid $45,000 in management fees in the current nine-month period ended September 30, 2006 (2005 - $72,000) to a company controlled by a director of the Company, which expenses are included in general and administrative expense.

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

SUBSEQUENT EVENTS

On October 4, 2006, Solana underwent a significant corporate restructuring facilitated through its acquisition of Breakaway Energy Inc ('Breakaway'), an internationally focused resource company. Through this transaction, Mr. Scott Price and Mr. Glenn Van Doorne, principals of Breakaway, became the President and CEO and the Chief Operating Officer of Solana, respectively.

Pursuant to a share purchase agreement dated October 2, 2006, Solana purchased all of the issued and outstanding shares of Breakaway, in exchange for the issuance of 10 million shares of Solana and 10 million performance warrants. Of the 10 million Solana shares, 2/3 were to be issued subject to a voluntary escrow agreement with Solana and will be released as to one-half of the escrowed shares on each of October 2, 2007 and 2008, respectively.

The performance warrants have a term of 42 months, an exercise price of $2.00 per share, and are exercisable only if Solana's share price trades above $2.75 per share for a period of more than 45 consecutive trading days. The 10 million performance warrants are also subject to a voluntary escrow agreement with Solana and will be released as to one-half of the performance warrants on each of October 2, 2007 and 2008 respectively.

Both the escrowed shares and performance warrants issued to Mr. Price and Mr. Van Doorne are subject to certain vesting provisions over the 24 month period following completion of the acquisition, including immediate vesting in the event of a change of control or in the event that Solana's share price trades above $2.75 per share for a period of more than 45 consecutive days.

BUSINESS RISK AND UNCERTAINTIES

The Company's business is subject to risks inherent in oil and gas exploration and development operations. In addition, there are risks associated with the Company's development stage of operations and the foreign jurisdiction in which it operates. The Company has identified certain risks pertinent to its business, including: exploration and reserve risks, drilling and operating risks, costs and availability of materials and services, capital markets and the requirement for additional capital, loss of or changes to production sharing, joint venture or related agreements, economic and sovereign risks, possibly of less developed legal systems, reliance on strategic relationships, market risk, volatility of future oil and gas prices and foreign currency risk.

Solana attempts to monitor, assess and mitigate certain of these risks by retaining an experienced team of professionals and using modern technology. Further, the Company has focused its activities in a known hydrocarbon basin in a jurisdiction that has previously established long-term oil and gas ventures with foreign oil and gas companies, existing infrastructure of services and oil and gas transportation facilities, and reasonable proximity to markets. The Company also retains consultants resident in Colombia to monitor economic and political developments and to assist with operating, administrative and legal matters. There are certain risks, however, over which the Company has little or no control.

OUTLOOK

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Petroleum and Natural Gas Operations

Solana uses the full cost method to account for its petroleum and natural gas operations, whereby all costs of exploring for and developing petroleum and natural gas reserves are capitalized and accumulated in country-by-country cost centres. These capitalized costs will be depleted using the unit-of- production method based on estimates of proved reserves. The costs in cost centres from which there has been no commercial production are not subject to depletion until commercial production commences. These capitalized costs are assessed to determine whether it is likely such costs will be recovered in the future. Costs which are not likely to be recovered in the future are written off.

Petroleum and natural gas reserves form the basis for a number of accounting estimates and support for the carrying amount of petroleum and natural gas properties. The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production, estimated commodity price forecasts and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information. Reserve estimates can be revised upward or downward, based on the results of future drilling, testing, production levels and economics of recovery based on flow forecasts.

Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


From the Career Center
Jobs that may interest you
Outside Sales Representative
Expertise: Business Development|Sales
Location: Tulsa, OK
 
United States Dickinson: Chemical Account Manager I
Expertise: Business Development|Field Service Tech|Sales
Location: Dickinson, ND
 
US Houston, Texas: Operations Finance Manager
Expertise: Accounting|Financial Analyst
Location: Houston, TX
 
search for more jobs

Brent Crude Oil : $49.7/BBL 1.76%
Light Crude Oil : $47.12/BBL 1.55%
Natural Gas : $3.07/MMBtu 0.58%
Updated in last 24 hours